Fundamentals of Corp. Fin. (Looseleaf)(Custom)
15th Edition
ISBN: 9781269945646
Author: Berk
Publisher: PEARSON
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Textbook Question
Chapter 20, Problem 3CQ
Based on the
| 1 | Year | 2017 | 2018 | 2019 | 2020 | 2021 |
| 2 | Free Cash Flow ($000s) | |||||
| 3 | Net Income | |||||
| 4 | Plus: After-Tax Interest Expense | |||||
| 5 | Unlevered Net Income | |||||
| 6 | Plus: |
|||||
| 7 | Less: Increases in NWC | |||||
| 8 | Less: Capital Expenditures | |||||
| 9 | Free Cash Flow of Firm | |||||
| 10 | Plus: Net Borrowing | |||||
| 11 | Less: After-Tax Interest Expense | |||||
| 12 | Free Cash Flow to Equity |
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The free cash flows (in millions) shown below are forecast by Simmons Inc. If the weighted average cost of capital is 13% and the free cash flows are expected to continue growing at the same rate after Year 3 as from Year 2 to Year 3, what is the Year 0 value of operations, in millions?
Year:
1
2
3
Free cash flow:
−$20
$42
$45
$680
$648
$617
$586
$714
You will apply the concepts of company valuation that you have just learned to determine whether company XYZ is overvalued.
We are currently at the end of the year "t". You performed a thorough financial analysis of XYZ and forecast the following Free Cash Flows (FCF):
Year t+1: 352 million USDYear t+2: 385 million USDYear t+3: 407 million USDFrom year t+3 onward, you expect the FCFs to grow at a constant yearly rate of 4%.
Through your analysis, you also determined that the appropriate Weighted Average Cost of Capital (WACC) for XYZ was 11%.
Finally, you know that XYZ has 1000 million USD in debt and 100 million shares outstanding.
Current and projected free cash flows for Radell Global Operations are shown below. Growth is expected to be constant after 2015, and the weighted average cost of capital is 11%. What is the horizon (continuing) value at 2016 if growth from 2015 remains constant? Show your work, step by step.
Actual 2013
2014
Projected 2015
2016
Free Cash Flow
(millions of dollars)
$606.82
$667.50
$707.55
$750.00
Chapter 20 Solutions
Fundamentals of Corp. Fin. (Looseleaf)(Custom)
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